Getting an education is expensive. At age 44 I just paid off my last law school loan, I’m ashamed to admit. But if you take advantage of the federal tax credits that are available today, you can catch a bit of a break.
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There are two federal tax credits in place to help make the cost of college more affordable. These credits are the American Opportunity Credit and the Lifetime Learning Credit. Both of these credits can be used for yourself and for your dependents. You can choose which credit is most beneficial to you. But to do so, you need to know the rules.
Below you’ll find some general guidelines for both of these credits, but be sure to consult a tax professional before making any decisions. In order to qualify for either one of the credits, you must pay college tuition for yourself, your spouse or a dependent. The credit can only be claimed once, which means it has to be claimed by either the parent or the student, but not by both. In addition, if you claim the student as your dependent, then the student cannot file for the credit, too.
The rules for using the credits are simple—you can only claim one credit per student in a single tax year. For example, if you use the American Opportunity Credit to cover part of your tuition charges, then you can’t use the Lifetime Learning Credit. For each student, you can only choose to claim one of the credits.
However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. In other words, you are able to use the American Opportunity Credit for yourself and the Lifetime Learning Credit for your dependent. Also, if you claim the tuition and fees tax deduction, you cannot use the American Opportunity Tax Credit or the Lifetime Learning Credit. It’s one or the other, so weigh your options carefully.
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Below are the details about the two credits:
The American Opportunity Credit
• The credit can be up to $2,500 per eligible student.
• It is available for the first four years of post-secondary education.
• Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
• The student must be pursuing an undergraduate degree or other recognized educational credential.
• The student must be enrolled at least half time for at least one academic period.
• Qualified expenses include tuition and fees, coursed related books supplies and equipment.
• The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.
Lifetime Learning Credit
• The credit can be up to $2,000 per eligible student.
• It is available for all years of postsecondary education and for courses to acquire or improve job skills.
• The maximum credited is limited to the amount of tax you must pay on your return.
• The student does not need to be pursuing a degree or other recognized education credential.
• Qualified expenses include tuition and fees, course related books, supplies and equipment.
• The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.